Average Inheritance Tax bill in the UK climbs over £200,000

The average inheritance tax bill in the UK has climbed over £200,000 according to latest government figures.

There were 22,100 deaths in 2018/19 that resulted in an inheritance tax bill, and the average bill was £209,502. This was up 6% from £197,521 the year before.

Only 3.7% of UK deaths resulted in an inheritance tax bill in 2018/19, but that percentage is expected to rise following the Chancellor’s decision to freeze the tax-free allowances for the next five years to help pay the Coronavirus bill.

And these latest figures show those families that do pay the 40% tax can end up forking out large sums of money.

Sean McCann, Chartered Financial Planner at NFU Mutual, said: “Inheritance tax is feared by many but paid by relatively few. But with the average bill in excess of £200,000, it can make a significant dent in a family’s wealth for those that do get caught in the net.

“With the tax-free allowances frozen for the next five years, rising asset prices and a heated housing market, a growing number of families will be impacted.

“It’s critical that families concerned about being caught by inheritance tax seek advice as early as possible. The earlier you plan the more options you have to mitigate any potential bill.”

Ways to reduce your inheritance tax bill

With more and more families expected to pay inheritance tax over the next five years, for those with assets above the tax-free allowances, there are some simple ways to reduce your future bill.

• Don’t touch your pension until you have to

Any money that is left in someone’s pension fund when they die is normally free of inheritance tax so make it the last thing you spend. Most other savings and investments are subject to inheritance tax but pensions are not.

• Use business reliefs

If you leave a qualifying business behind then you may be able to pass it on tax free because of Business Property Relief.

• Take out life insurance

Life insurance policies don’t reduce the bill itself but can provide a lump sum to your family to help them pay the bill. However, make sure that it is written in a trust so that the insurance policy itself is not included in the estate.

• Make gifts

One great way to reduce the value of your estate is to give some of it away during your lifetime. Some gifts are immediately free of inheritance tax. You can give up to £3,000 away each tax year, if you haven’t used the previous year’s allowance you can go back one year and get it.

You can also make gifts on marriage to your child (£5,000) a grandchild (£2,500) or anyone else (£1,000). You can also make unlimited gifts from your income, provided they are regular and don’t impact your normal standard of living. For most other gifts you need to survive for seven years or they will be clawed back into your estate.